Consumer price inflation soared to 4.2% in May, the highest in three years, driven primarily by rising energy prices due to the Iran war, according to federal data released Wednesday. This inflation rate, more than double the Federal Reserve’s 2% target, diminishes hopes for an interest rate cut. Core inflation, excluding food and energy, reached 2.9%, with apparel costs up 4.8% and transportation services rising 4.1%.
The American Enterprise Institute, known for its conservative views, criticized the potential for an interest rate cut, citing “Trump’s war of choice in Iran” and “reckless budget and import tariff policies.” According to a June 1 report from Moody’s Analytics, the war’s costs have already surpassed economic gains from larger tax refunds under the Trump administration.
Moody’s chief economist Mark Zandi noted in a social media post, “The bigger tax refunds Americans have received this year no longer cover the higher costs of gasoline, diesel, and jet fuel caused by the war.” Fuel oil and gasoline saw the largest price increases at 58.9% and 40.5% respectively, while used car and truck prices fell by 2%, and medical care commodities decreased by 1.8%.
Inflation was most pronounced in the Northeast and Midwest at 5%, with the West experiencing the lowest at 3.5%. In the South, inflation was 3.9%. Urban areas reported varied rates, with Honolulu, Hawaii, and New York City, including parts of New Jersey and Pennsylvania, both at 5.1%. The next highest rates were 4.7% in Minneapolis-St. Paul, 4.1% in the Washington, D.C., area, and 3.2% in Tampa, Florida.
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